Brokerage firms are pushing back on newly proposed Finra rules regarding non-cash gifts Finra members can give to other professionals they do business with.
The proposed rules would raise gift limits and extend the rule to cover all kinds of products, but the industry also wants the approach to be based on principles rather than hard and fast rules to avoid the appearance of impropriety.
As proposed, the rule would raise the gift limit from the current $100 cap to $175 per person per year. Firms would not have to record gifts given or received if the value was under $50.
In addition, Finra wants to prohibit product-specific internal sales contests (currently allowed for total sales of mutual funds and variable annuities), extend the rules to cover all securities products (not just packaged products and the public offerings of securities) and create a separate new rule for business entertainment expenses.
Finra began wading into the tricky business of updating its rules on gifts and entertainment more than two years ago by asking for industry feedback. In August, it released a proposal for comment (http://www.finra.org/industry/notices/16-29).
In comment letters filed late last month, the brokerage industry praised Finra for updating the rules, but took issue with many of the complicated details that have always made complying with the non-cash compensation rules a challenge.
The Financial Services Institute said many B-Ds have misunderstood the rule as applying to gifts to retail clients, when the rule only covers gratuities that are connected to the employer of the business associate.
“If Finra were to clarify for firms that the requirements do not apply to gifts provided to individual retail clients, firms would then be free to reallocate the resources to other compliance efforts,” the FSI said in a letter.
The gift rule comes into play “in connection with an employee’s business [and] that can be tricky to define,” said securities attorney Joel Beck of the Beck Law Firm LLC in Lawrenceville, Ga. As a result, firms may go beyond the requirements of the rule and prohibit or restrict client gifts, Beck said in an interview.
The FSI and the Securities Industry and Financial Markets Association also want Finra to use a principles-based gift limit instead of the proposed $175 hard cap. Short of that, they want a higher threshold and an automatic inflation escalator.